[Congressional Record Volume 155, Number 1 (Tuesday, January 6, 2009)]
[Senate]
[Pages S19-S20]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        SEC INVESTIGATION INTO PEQUOT CAPITAL MANAGEMENT TRADING

  Mr. SPECTER. Mr. President, the Finance Committee, under the 
chairmanship of Senator Grassley in the 109th Congress, and the 
Judiciary Committee, under my chairmanship in the 109th Congress, 
conducted an extensive inquiry into allegations of insider trading. The 
issue is succinctly framed in a letter which I wrote to Christopher 
Cox, Chairman of the Securities and Exchange Commission, in a letter 
dated December 24, 2008. I ask unanimous consent that the full text of 
this letter be printed in the Record at the conclusion of my statement.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See Exhibit 1.)
  Mr. SPECTER. The matter could be most succinctly articulated by 
quoting from parts of this letter as follows:

       Dear Chairman Cox:
       Senator Charles Grassley and I have already issued public 
     findings concerning the Securities and Exchange Commission's 
     . . . investigation into Pequot Capital Management's . . . 
     suspicious trading.

  Referring to insider trading.

       These findings also criticized the original Office of 
     Inspector General's report, which essentially ignored former 
     SEC investigator Gary Aguirre's complaints of political 
     influence in the Pequot investigation . . . after the new SEC 
     Inspector General, David Kotz, largely agreed with our 
     findings and recommended disciplinary action against Mr. 
     Aguirre's supervisors up to the Director of Enforcement, the 
     SEC selected an initiating official who, in a matter of days, 
     found that disciplinary action was unwarranted. That official 
     was described in press accounts as an Administrative Law 
     Judge, and it was not until further inquiry that the SEC 
     admitted she was not acting in a judicial capacity in issuing 
     her decision. I am now writing because recent events provide 
     the SEC with an opportunity to make good on its Pequot 
     investigation, despite having . . . closed the case in 
     November 2006.
       . . . The investigation centered, in part, on evidence that 
     David Zilkha, a Microsoft employee who joined Pequot in April 
     2001 and separated from Pequot in November 2001, may have 
     given Arthur Samberg, Pequot's CEO, inside information 
     regarding Microsoft.
       Documents recently filed in a Connecticut divorce case 
     (Zilkha v. Zilkha) disclose that Pequot has made or promised 
     to make payments of $2.1 million to Mr. David Zilkha. On 
     December 1, 2008, and December 16, 2008, Pequot and Pequot 
     CEO Arthur Samberg filed motions for protective orders, and 
     the state court has scheduled the hearing on those motions 
     for January 16, 2009.
       On December 10, 2008, Senator Grassley and I requested from 
     Pequot and Mr. Samberg all records related to the payments to 
     Mr. Zilkha, as well as an explanation of the payments. On 
     December 17, 2008, Mr. Samberg responded that the payments to 
     Mr. Zilkha were for the purpose of ``settling a civil claim 
     related to his employment and termination by Pequot.'' Mr. 
     Samberg enclosed a few documents, but we have requested 
     additional records, and have asked for a complete production.
       Given the troubled history of this case, the SEC should 
     also be seeking answers as to any payments made to Mr. Zilkha 
     by Pequot. I therefore write to strongly urge the SEC to 
     consider filing pleadings in the Connecticut action, so that 
     the court will have all relevant information when it 
     considers the Pequot and Samberg motions for protective 
     orders.

  In essence, we have serious allegations of insider trading. We have 
the Inspector General of the SEC recommending serious disciplinary 
action. We have the matter being papered over by the SEC on what 
purported to be new conclusions reached by the administrative law judge 
where, in fact, the individual was not an administrative law judge. And 
now we find $2.1 million in payments or promised payments to an 
individual who may have been in the position to provide insider 
information. The matter is coming before a court in a domestic 
relations case, but that provides an opportunity to find those facts.
  This letter has not been answered, and I am taking this occasion to 
put it into the Congressional Record in the hopes that we may have some 
action by the SEC which will be calculated to get to the bottom of this 
matter. Certainly, this is something that ought to be of major concern 
to the Securities and Exchange Commissioners, to the Chairman, and to 
the SEC, generally.

  The Finance Committee and the Judiciary Committee, through the 
efforts of Senator Grassley and myself, have gone to very substantial 
lengths to deal with this issue. Oversight by the Congress is very hard 
to pick up these complex matters and get into them, but a lot of work 
has been done, and we are still undertaking to try to get to the bottom 
of the allegations of insider trading. The issue now has turned to be 
greater than insider trading on one specific matter, but to the 
integrity of the SEC itself, in pursuing these kinds of allegations and 
in following the facts wherever they may lead.
  Chairman Cox has limited additional tenure, but there is sufficient 
time for him to act if he will, and if he will not, Senator Grassley 
and I may seek to intervene ourselves. This is something which is the 
primary responsibility of the SEC, and it would be my hope that 
Chairman Cox would act on this matter to intervene, file an amicus 
brief, find out what the facts are on that $2.1 million to get to the 
bottom of these serious allegations of insider trading.

                               Exhibit 1

                                                      U.S. Senate,


                                   Committee on the Judiciary,

                                Washington, DC, December 24, 2008.
     Hon. Christopher Cox,
     Chairman, U.S. Securities and Exchange Commission, 100 F. 
         Street, N.E., Washington, DC.
       Dear Chairman Cox: Senator Charles Grassley and I have 
     already issued public findings concerning the Securities and 
     Exchange Commission's (``SEC'') bungled investigation into 
     Pequot Capital Management's (``Pequot'') suspicious trading. 
     These findings also criticized the original Office of 
     Inspector General's report, which essentially ignored former 
     SEC investigator Gary Aguirre's complaints of political 
     influence in the Pequot investigation. You welcomed our 
     findings and worked to implement our recommendations. 
     Nonetheless, after the new SEC Inspector General, David Kotz, 
     largely agreed with our findings and recommended disciplinary 
     action against Mr. Aguirre's supervisors up to the Director 
     of Enforcement, the SEC selected an initiating official who, 
     in a matter of days, found that disciplinary action was 
     unwarranted. That official was described in press accounts as 
     an Administrative Law Judge, and it was not until further 
     inquiry that the SEC admitted she was not acting in a 
     judicial capacity in issuing her decision. I am now writing 
     because recent events provide the SEC with an opportunity to 
     make good on its Pequot investigation, despite having 
     precipitously and unjustifiably closed the case in November 
     2006.
       In 2006, the SEC closed its investigation of April 2001 
     trading by Pequot in Microsoft stock. The investigation 
     centered, in part, on evidence that David Zilkha, a Microsoft 
     employee who joined Pequot in April 2001 and separated from 
     Pequot in November 2001, may have given Arthur Samberg, 
     Pequot's CEO, inside information regarding Microsoft.
       Documents recently filed in a Connecticut divorce case 
     (Zilkha v. Zilkha) disclose that Pequot has made or promised 
     to make payments of $2.1 million to David Zilkha. On December 
     1, 2008, and December 16, 2008, Pequot and Pequot CEO Arthur 
     Samberg filed motions for protective orders, and the state 
     court has scheduled the hearing on those motions for January 
     16, 2009.
       On December 10, 2008, Senator Grassley and I requested from 
     Pequot and Mr. Samberg all

[[Page S20]]

     records related to the payments to Mr. Zilkha, as well as an 
     explanation of the payments. On December 17, 2008, Mr. 
     Samberg responded that the payments to Mr. Zilkha were for 
     the purpose of ``settling a civil claim related to his 
     employment and termination by Pequot.'' Mr. Samberg enclosed 
     a few documents, but we have requested additional records, 
     and have asked for a complete production.
       Given the troubled history of this case, the SEC should 
     also be seeking answers as to any payments made to Mr. Zilkha 
     by Pequot. I therefore write to strongly urge the SEC to 
     consider filing pleadings in the Connecticut action, so that 
     the court will have all relevant information when it 
     considers the Pequot and Samberg motions for protective 
     orders. Please respond as to whether the SEC will take such 
     an action. I also ask that you notify me immediately if the 
     SEC reopens its investigation or takes any enforcement action 
     in light of this new evidence.
           Sincerely,
                                                    Arlen Specter.

  Mr. SPECTER. Madam President, in the absence of any other Senator on 
the floor seeking recognition, I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mrs. McCaskill). The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. ISAKSON. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. SALAZAR.) Without objection, it is so 
ordered.

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